Dilemma Structures Between Contracting Parties in Software Development Projects

Gaebert C.

Abstract
The risk of failure of software development projects has been high for decades. One main reason identified by empirical studies is that the requirement specifications have gaps at the start of the project. Research on requirement analysis and project management primarily focuses on the improvement of methods and the behavior of the project participants. In our study, we suggest switching to the contracting level, describing the interaction of the involved organizations in terms of game theory. Organizations pursue economic targets. As we will show, the customer and the supplier are in a dilemma situation regarding the effort for closing the gaps in the requirement specifications. This results in a high risk for the quality of the software system. In support of our theoretical argument, we carried out an empirical investigation that shows that gaps in requirements and conflicts in the project exist of nearly every project. The most commonly used contract model is a fixed-price contract. From our model, we can derive suggestions for the contract design of software development projects as well as for the cooperation behavior during the project.

Keywords
Dilemma structures; Failure; Incomplete contract; Information asymmetry; Outsourcing; Software development project